Incentive reform to create 1.5M jobs: DOF

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    The Department of Finance (DOF) has maintained that the Corporate Income Tax and Incentives Rationalization Act (CITIRA) will create 1.5 million jobs, challenging the Joint Foreign Chambers of the Philippines (JFC) to back their claims about the domestic jobs that will ostensibly be affected or lost once the proposal becomes law.

    In a press statement yesterday, Karl Kendrick Chua, DOF undersecretary, called on the chambers’ leaders to look more closely at the proposed second package of the comprehensive tax reform program instead of “prematurely fretting over imagined job losses.”

    Chua also challenged them to provide the names of the companies and the number of jobs to be affected in each company.

    “Our numbers are transparent. Companies will reasonably invest at least 50 percent of their additional money from the reduction of the corporate income tax (CIT) rate in growing their business. This will mean more jobs – a total of 1.5 million jobs actually. Moreover, the new menu of incentives for investors, as proposed in CITIRA, will also encourage job creation and upskilling,” Chua said.

    He added: “We hear them. We have been listening to them and asking them in almost every meeting for two years now to give us more details on what kinds of jobs they are referring to, in which industries, and in which areas of the country, so we can help.

    Secretary (Ramon) Lopez of the Department of Trade and Industry, who chairs both PEZA (Philippine Economic Zone Authority) and BOI (Board of Investments), already said that we are open to continue supporting footloose industries. So why won’t they give us more details on their claims? Their lack of transparency is a little bit suspicious, don’t you think?”

    Chua’s statement was in reaction to the claims of John Forbes, representing the JFC in the Senate committee hearing last week, that the passage of the CITIRA bill will lead to the loss of jobs. Forbes is senior adviser at the American Chamber of Commerce of the Philippines, a JFC member-organization.

    “I also want to ask them if they have included in their calculations the jobs that will be created when JFC member-companies are able to expand using the savings from a lower CIT rate,” Chua said.

    “I surmise that many members of the JFC-affiliated chambers are actually companies paying the regular rate. They will benefit from a lower regular corporate income rate. I hope these companies were consulted and considered by their leadership. We must remember that this reform must be treated as a package. We cannot pursue one aspect, which is the reduction of the CIT rate, without pursuing the other, which is the modernization of the fiscal incentive system, if we want to be fiscally prudent,” he added.

    Chua is also challenging the members of the foreign chambers currently receiving incentives to consider and calculate for themselves what they stand to gain from CITIRA.

    “We want to transform the incentive system to reward job creation, among other activities that are directly beneficial to the Filipino people. For instance, the highly labor-intensive industries can avail of the superior incentives in the form of an additional 50 percent deduction on labor, under CITIRA. Some companies we have met claim that labor accounts for 60 percent of their revenues. So instead of deducting around 60 percent from revenues, they can deduct 90 percent, and reduce their taxable income. Under CITIRA, the firm gets a performance-based incentive that guarantees jobs,” Chua said.

    “Another example of a superior incentive is the additional deduction for training. If locators train their workers to improve their skills, they get additional 100-percent deduction or a total of 200-percent deduction on their training costs. You know, the supply of skilled labor is one problem that the BPO (business process outsourcing) sector has been experiencing for 10 years. The proposed system is designed to reward them for training their employees.

    They can essentially bill part of their expense to government. One more superior incentive is the additional 50-percent deduction on local purchases of inputs to link small and medium enterprises (SMEs) to the supply chain. This will further enable SMEs to grow and create jobs,” he added.

    Under CITIRA, the one-stop shop functions of the investment promotion agencies like PEZA remain, “so there is nothing to be afraid of,” Chua noted.

    “So I am not sure why the leaders of some foreign chambers want to keep the present system that incentivizes profit, rather than incentivizing the behavior that directly benefits the Filipino people. Creating jobs and ensuring that our citizens are prepared for the employment demands of the future are the highest priorities of this reform,” he said.

    The CITIRA bill was approved in the House of Representatives last Sept. 13 and is currently undergoing deliberations at the committee level in the Senate.